How Much Will Foreclosure Lower Your Credit Score?

One of the most damaging events that can effect a person's credit score is the foreclosure of a property in his name. Most mortgages take the form of secured loans, in which the property the loan was used to purchase act as collateral. If the borrower misses too many payments on the loan, the lender may choose to seize the house in an action known as foreclosure. This will harm a person's credit score greatly, although by how much depends on several factors.

Before Foreclosure

The damage done to a person's credit score will actually begin before a property is foreclosed upon. This is because foreclosure is caused by a failure to pay back a loan on time. When a payment is late, the creditor reports this missed payment to a credit reporting bureau, which docks the debtor a number of points. The exact number of points depends on the size of the debt and how late the payment is.

Points

When a home is foreclosed upon, the lender essentially writes off a portion of a very large debt. This write-off is listed on an individual's credit report as a foreclosure. The exact damage done to a person's score by this foreclosure will depend on a number of factors, including the rest of the individual's credit history and the size of the home loan. However, according to the reference website Mortgage Fit, most scores will drop about 250 points.

Time Frame

The 250-point drop in an individual's credit score will occur immediately after the foreclosure has been listed on the person's report. However, this drop will not be permanent. According to federal law, a foreclosure can only be listed on a credit report for a maximum of seven years, after which is must be taken off and can no longer affect the person's score. In addition, a person's score will improve the more time has elapsed since the foreclosure, so long as he takes out new credit and pays back his loans on time.

Deliquencies

In some states, when a property is foreclosed upon, the debtor is no longer required to pay the creditor any additional money. However, in other states, the debtor may be liable for any costs incurred by the lender in selling the house, as well as the difference in the amount owed on the loan and the amount fetched for the house at auction. This "delinquency" debt, if not paid, can harm the person's credit score even more.